Federal Grand Jury Indicts Ralphs in Labor Fraud
Scheme

December 16, 2005 (PLANSPONSOR.com) - A Los Angeles
federal grand jury has indicted a California supermarket
company on charges it participated in a widespread scheme to
secretly rehire hundreds of locked-out workers during a
recent strike as a way to survive those labor
problems.

A news release from US Attorney
Debra Wong Yang of the Central District of
California
said the 53-county indictment charged that Ralphs Grocery
Company gave the rehired workers false names and false
social security numbers and filed thousands of falsified
employment documents including tax withholding forms and
income tax documents.

Prosecutors allege that the Los Angeles-based
company, which operates 460 supermarkets inCalifornia and
southern Nevada, required rehired locked-out employees to
work under the false identities to hide its illegal
activities from labor unions, the Internal Revenue
Service, the Social Security Administration and the
National Labor Relations Board (NLRB) during the 141-day
2003-2004 grocery worker strike.

The indictment alleged that the company concealed
its rehiring of locked-out employees by assigning those
employees to stores far from their normal workplaces,
moving them from store to store, and requiring them to
wear name tags bearing their false names. The indictment
alleges that Ralphs’ conduct was the result of “tacit
approval, if not encouragement, by Ralphs’ senior
management to hire locked-out and striking employees as
temporary replacement workers.”

The indictment also charged that Ralphs falsified
reports it submitted to pension and health benefit plans
for current and retired grocery workers. In addition,
Ralphs allegedly issued thousands of weekly payroll
checks under the false names used by rehired workers, and
then allowed these workers to cash their paychecks at
Ralphs stores as means of concealing and promoting the
ongoing use of false identities, prosecutors
charged.

The indictment specifically charges Ralphs with
conspiracy, 14 counts of causing the use of false social
security numbers, five counts of identity fraud, one
count of falsifying and concealing material facts in
matters within the jurisdiction of the Internal Revenue
Service and the Social Security Administration, one count
of conspiracy to commit money laundering, 11 counts of
money laundering, 16 counts of false statements relating
to an employee benefit plan, one count of concealment of
facts relating to an employee benefit plan, two counts of
false statements to the NLRB and one count of obstruction
of justice.

In a statementon the Web site of The Kroger Co., Ralph’s corporate
parent, officials acknowledge that some managers
rehired striking workers under false names and/or false
Social Security numbers, but that the company never
condoned such actions and has made contributions to
employee benefit plans and filed corrected records for all
affected workers.

Ralphs has taken disciplinary action against the
management individuals involved, the company statement
said. “Ralphs regrets that a number of its store managers
took it upon themselves to violate Company policy and
federal law in order to rehire striking workers. Although
we believe many of these managers acted for humanitarian
or personal reasons, their actions nonetheless were wrong
and contrary to explicit Company policy,” said Paul
Heldman, Kroger’s senior vice president, in the
statement.

Softening a Strike’s Effects

The indictment alleges that, in combination with a
secret revenue sharing agreement that Ralphs executed
with its two main competitors, the rehiring scheme was
intended to better Ralphs’ position in the 2003- 2004
labor dispute by, among other things, mitigating the
financial and operational hardships of a complete
lockout. The lockout and strike lasted approximately 4½
months and affected approximately 65,000 to 70,000
grocery workers, making it the longest and largest labor
dispute involving the grocery industry inUnited States
history.

In December 2003, the National Labor Relations
Board began an investigation of allegations that Ralphs
had violated federal labor laws by rehiring locked-out
employees under false names and social security numbers,
allegations that could

result in Ralphs, by its own estimate, being
ordered to pay $50 million to $100 million in back
pay.

The indictment alleges that Ralphs responded by
making false statements to the NLRB to cover up the full
extent of its unlawful conduct during the lockout. At the
end of January 2004, a federal grand jury began
investigating allegations that Ralphs had violated
federal criminal laws by rehiring locked-out employees
under false names and social security numbers. The
indictment alleges that Ralphs acted to obstruct this
investigation by falsely representing that certain key
documents detailing the company’ s criminal conduct and
senior management’s awareness of this conduct were
protected by attorney-client privilege, which led the
company to withhold and delay the production of these key
documents.

If convicted of all 53 counts in the indictment,
Ralphs faces potential penalties that include five years
of corporate probation, fines totaling up to twice the
amount of gain it received as a result of its criminal
conduct – which, based on the allegations in the
indictment, could be more than $100 million – and the
payment of restitution to the victims.